Out-Law / Your Daily Need-To-Know

Pension transfer regulations designed to curb scams

Out-Law News | 08 Nov 2021 | 2:09 pm | 2 min. read

Pension schemes in Britain will gain new powers to stop transfers of savings to suspected scammers from later this month.

The Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 will come into force in England, Scotland and Wales on 30 November.

The regulations, finalised following a consultation earlier this year, are being introduced under Section 125 of the Pension Schemes Act 2021. That section of the Act provides the government with scope to place conditions on the transfer of savings that need to be met before savers can exercise their statutory right to transfer their money to other schemes.

Ben Fairhead of Pinsent Masons, the law firm behind Out-Law, and a member of the Pension Scams Industry Group (PSIG) that has been working closely with the government on the new regulations, said the regulations aim to address concerns raised by the pensions industry about their ability to prevent transfers to suspected scammers in circumstances where savers were insistent that the transfer go ahead.

“These regulations could prove to be the most significant breakthrough in tackling pension scams,” Fairhead said.

“Trustees will be able to block or suspend a suspicious looking pension transfer with much more ease and legitimacy than ever before. They have been stymied for the past decade in finding a lawful means to object to a transfer, but these new regulations create extremely wide scope to either decline a transfer or refer the member for independent guidance from the Money and Pensions Service (MaPS). The regulations won’t address investment fraud but if they don’t result in a dramatic reduction in the number of scam transfers, it is difficult to see what else will,” he said.

The pre-conditions for transfer that the new regulations set differ depending on the type of scheme to which money is to be transferred to.

Prospective transfers to authorised master trusts, for example, can proceed if the trustee can simply confirm the transfer is to one of these schemes. No further checks and balances apply in those circumstances. However, for transfers to occupational pension schemes, trustees will need to confirm the member has demonstrated an employment link with the scheme before the transfer takes place, while trustees seeking to transfer to a qualifying recognised overseas pension scheme (QROPS) will need to prove an employment link or demonstrate residency in the same financial jurisdiction as that of the scheme to which they wish to transfer.

Transfers to all other schemes will be subject to a ‘flag’ regime. 

The Department for Work and Pensions (DWP) said: “Fraudsters frequently offer ‘too good to be true’ incentives such as free pension reviews, early access to pension cash, or other time-limited offers. Lured in by these bogus offers, targets are then tricked into transferring their savings into a scam scheme and defrauded out of their savings.”

“Where there are tell-tale signs of fraud or methods frequently used by scammers, trustees and scheme managers will be able to prevent a transfer request – giving it a ‘red flag’. In other circumstances where fraud is suspected, an ‘amber flag’ will pause a transfer until the scheme member can prove they have taken scam specific guidance from the Money and Pensions Service (MaPS),” DWP said.

The new regulations will be reviewed within 18 months of coming into force.

In April 2021, PSIG estimated that around 40,000 savers had lost around £10 billion to scams since 2015, based on an estimate of 5% of all pension transfers showing typical scam signs. Between January 2015 and December 2019, Action Fraud received around 3,000 reports of pension scams, but the government believes many other scams go unreported.